The Fatal Conceit in Foreign Policy

David R. Henderson

Question: Which Pakistani leader should the U.S.
government support?

You wouldn't know it from watching most of the candidates for president, but
this is a trick question.

Why is it a trick question? Because it's like asking, "When did you stop
beating your wife?" If you try to answer when you stopped, you implicitly
admit that you did beat her, even if you didn't. Similarly, if you try to answer
which Pakistani leader the U.S. government should support, you imply that the
U.S. government should support some Pakistani leader. Here are my answers
to each question.

Question: When did you stop beating your wife?

Answer: I've never beaten my wife.

Question: Which Pakistani leader should the U.S. government support?

Answer: The U.S. government should not support any leader in Pakistan. The
U.S. government should keep its nose out of other people's affairs. Just as
we would object if Pakistani government officials tried to influence U.S. elections,
so we should object just as vociferously to the U.S. government trying to influence
who runs the Pakistani government.

My objection to the United States trying to run other countries' affairs is
only partly a moral one. Let's face it: the people contending to be the head
of Pakistan are not nice people who somehow deserve free rein. Even Benazir
Bhutto, for whom many are now mourning, was
pretty vicious. And, for that matter, most officials in the U.S. government
are fairly vicious, too. Look at how easily it came to so many of the candidates
for president, Barack Obama included, to say that all options for dealing with
various governments of the world are "on the table." By saying this,
these candidates were including the possible use of nuclear weapons, even if
the weapons were to be used against countries whose governments had not attacked
the United States. This strikes me as vicious.

But my biggest objection to supporting a Pakistani leader is a practical one.
Even if officials in, or contending to be in, the U.S. government were not vicious
(and some of them aren't), they simply don't have enough information to decide
correctly, if there is such a thing as "correctly," which person to
back. They have what economists call "an information problem." Economists
have shown time and again that using information to plan an economy simply doesn't
work – and attempting to plan another country's government will fail just as
dismally.

The big breakthroughs in thinking about planned economies came from two economists
from Austria, Ludwig von Mises and his student Friedrich
Hayek. Although it was von
Mises who, in 1920, had the original insight about information, Hayek elaborated
and added to the argument. In a series of essays in the 1930s and 1940s, Hayek
drove the final intellectual nail in the coffin of socialism. He pointed out
that even if central planners had pure motives – so that we wouldn't have to
worry about their incentives – they simply could not have the information they
would need to plan an economy well. In any complex economy, there are at least
hundreds of thousands of items, and central planners, having thrown out the
free market, cannot know relative supplies and demands for these products. This,
wrote Hayek, is precisely what the market tells us. The free market, he argued,
works so well because the information that really matters in any economy exists
in a decentralized form in the minds of the millions of participants in the
market. In his famous 1945 article "The
Use of Knowledge in Society," which I have my students work through
in every course I teach, Hayek writes:

"Today it is almost heresy to suggest that scientific knowledge is
not the sum of all knowledge. But a little reflection will show that there is
beyond question a body of very important but unorganized knowledge which cannot
possibly be called scientific in the sense of knowledge of general rules: the
knowledge of the particular circumstances of time and place. It is with respect
to this that practically every individual has some advantage over all others
because he possesses unique information of which beneficial use might be made,
but of which use can be made only if the decisions depending on it are left
to him or are made with his active coöperation. We need to remember only
how much we have to learn in any occupation after we have completed our theoretical
training, how big a part of our working life we spend learning particular jobs,
and how valuable an asset in all walks of life is knowledge of people, of local
conditions, and of special circumstances. To know of and put to use a machine
not fully employed, or somebody's skill which could be better utilized, or to
be aware of a surplus stock which can be drawn upon during an interruption of
supplies, is socially quite as useful as the knowledge of better alternative
techniques. And the shipper who earns his living from using otherwise empty
or half-filled journeys of tramp-steamers, or the [real] estate agent whose
whole knowledge is almost exclusively one of temporary opportunities, or the
arbitrageur who gains from local differences of commodity prices, are all performing
eminently useful functions based on special knowledge of circumstances of the
fleeting moment not known to others." [paragraph H. 9]

The term that modern economists use for Hayek's "knowledge of the particular
circumstances of time and place" is "local knowledge."

Hayek goes on to argue that this local knowledge can't possibly be aggregated
in the minds of a few central planners, no matter how brilliant. And if the
government does not leave people free to act on their own local knowledge, most
of it won't be acted on.

Interestingly, some of the economists who had dismissed Hayek and von Mises
in the 1940s and for decades after came around to their way of thinking in the
late 1980s. Exhibit A is socialist economist Robert Heilbroner, who, in two
articles in the New Yorker and one article in my Concise Encyclopedia
of Economics (then The Fortune Encyclopedia of Economics), said that
von Mises and Hayek were right after all. In a 1989 New Yorker article,
Heilbroner wrote:

"Less than 75 years after it officially began, the contest between
capitalism and socialism is over: capitalism has won…. Capitalism organizes
the material affairs of humankind more satisfactorily than socialism."

And in a 1990 article in the New Yorker, Heilbroner wrote, "It
turns out, of course, that Mises was right" about how badly socialism would
work. Note his use of the term "of course." And in his 1993 article
in my Encyclopedia, Heilbroner leads with the following:

"Socialism – defined as a centrally planned economy in which the government
controls all means of production – was the tragic failure of the twentieth century."

Heilbroner went on to write, "In fact, we now know that their [von Mises'
and Hayek's] argument was all too prescient."

Although Hayek himself never, as far as I know, applied this thinking to foreign
policy, it applies beautifully. Just as central planners can't know how much,
and what kinds of, steel to produce, they can't know which leader in a foreign
country to support. None of them, even the most brilliant and informed of them,
has enough knowledge. The odds are, therefore, that by meddling in those countries'
affairs, they will do more harm than good.

The analogy between centrally planning an economy and centrally deciding which
official should run a foreign government is not perfect. Analogies seldom are.
The main difference is that a government that forswears central planning and
leaves individuals free to make their own decisions within a system of property
rights will typically end up being the government of a prosperous country. A
government that forswears planning other countries' governments, by contrast,
will not, by doing so, cause people in that other country to make good choices
about their own governments. But the point of the analogy is that a government
that refuses to interfere with choices about another country's government will
avoid making a bad choice, whereas a government that tries to meddle will almost
inevitably make a bad choice.

None of this has stopped many of the U.S. candidates from advocating their
own pet choices. On Dec. 27, the day Benazir Bhutto was assassinated, Democratic
candidate Bill Richardson issued a press
release in which he stated that Musharraf, the current head of Pakistan's
government, "must go." Richardson, like most of the candidates, with
the refreshing exception of Ron Paul, has what Hayek called in the central planning
context a "fatal conceit." He somehow thinks he is informed enough
to decide that Musharraf should resign. I'm not asserting that Musharraf shouldn't
resign. I simply don't know enough to make that assertion – and neither does
Richardson.

I wrote above that even the most brilliant and informed officials are unlikely
to make good choices when choosing the heads of other countries' governments.
But my case is even stronger than that because there is nothing in the competition
for political office that causes the most brilliant and informed to do well.
Hillary Clinton, for example, one of the two main contenders for the Democratic
nomination for president, showed abysmal ignorance of the Pakistani political
system recently. In a Dec. 28 interview with CNN's Wolf Blitzer, Clinton stated,
"If President Musharraf wishes to stand for election, then he should abide
by the same rules that every other candidate will have to follow." But
Clinton was mistaken, as anyone who has followed Pakistan's news closely would
know. The Jan. 8 elections to which she was referring are not to choose Pakistan's
president, but
to choose its parliament. Clinton repeated the same mistake two days later
in an ABC interview with George Stephanopoulos. She stated
of Musharraf and the Jan. 8 elections, "He could be the only person on
the ballot." So, even with two days to learn more, Clinton was still in
the dark. And remember that this is not some underfunded fringe candidate but,
rather, the best-funded candidate in the whole pack. Which means that no one
in her large staff corrected her mistake. Indeed, the Dec. 28 transcript from
which I quoted was issued by her very own staff. And she presumes to tell people
in other countries how to act? Give me a break.

Fortunately, there is one candidate for president who is humble enough to recognize
that neither he nor anyone else can make good choices for Pakistan. That man
is Ron Paul. One of his best moments in the whole campaign was when MSNBC's
David Shuster asked him what he would do about Pakistan. Candidate Paul made
it clear that the U.S. government should stay out. Paul argued that the
U.S. government should neither subsidize nor bomb Pakistan. Paul, moreover,
may well be the only candidate who has read Hayek. I believe that Hayek, had
he thought about foreign policy, would have been proud.

He has appeared on The O’Reilly Factor, the Jim Lehrer
Newshour, CNN, and C-SPAN. He has had over 100 articles published
in Fortune, the Wall Street Journal, Red Herring, Barron’s,
National Review, Reason, the Los Angeles Times, USA Today,
and the Christian Science Monitor. He has also testified
before the House Ways and Means Committee, the Senate Armed Services
Committee, and the Senate Committee on Labor and Human Resources.
Visit his Web site.

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